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OpenSea tries to navigate uncharted waters

February 14, 2022, 6:32 PM UTC

In the week since it was published, I keep finding myself returning to this Charlie Warzel article in The Atlantic that details his deep uncertainty about blockchain, the decentralized electronic ledger heralded as the future of near everything in tech.

Scarred by skepticism in the 1990s around that newfangled Internet, Warzel doesn’t want to miss out on the blockchain boat. He understands the allure of the buzzy products built on top of it: cryptocurrency, non-fungible tokens, and Web3—a nebulous proposal for the next iteration of the Internet. They all aim to democratize power in technology and finance, circumventing corporate and governmental gatekeepers.

Yet Warzel can’t fully buy into all the blockchain hype. Too many questions abound. Who will hold con artists and grifters accountable? Won’t somebody profit handsomely off all these ideas? And won’t this movement of decentralization, in which data is housed and controlled on a distributed public network, ultimately centralize power in the hands of those running the network?  

“I’d like to think that my instincts toward hucksterism and hype cycles are well attuned,” Warzel wrote. “Over the years, I’ve watched tech optimists—including some of the very boosters of Web3—get blinded by their ego, greed, or naivete. But there’s a part of me that worries about my own capacity to imagine the future.”

A fully mature blockchain future remains far off, but we’re already seeing these tensions play out in real time—most acutely in the $30 billion-plus non-fungible tokens space. (NFTs are unique digital assets, such as art and pieces of video, whose ownership is tracked via blockchain.)

As Fortune, The Wall Street Journal, and others have reported in recent weeks, the world’s largest NFT marketplace, OpenSea, faces an onslaught of complaints from users and creators. 

Bots are minting counterfeit NFTs at a breakneck clip and selling them to unsuspecting buyers. Scammers are copying artists’ work and selling it without the original creator’s knowledge. Sellers are storing NFTs they own in locations, known as wallets, where they thought the items couldn’t be sold, only to watch buyers swoop in and buy the assets.

OpenSea implemented some rules in late January designed to curb these abuses, such as limiting the number of NFTs that creators can mint. 

But many blockchain advocates blasted the regulations as antithetical to the anti-authoritarian spirit of the movement. OpenSea largely relented to those critics within 24 hours, scaling back some of the biggest marketplace-wide changes while pledging to work harder to snuff out bots and swindlers.

While OpenSea executives think they can manage their problems, another early NFT adopter is almost giving up altogether. 

Reuters reported Saturday that Cent, a small marketplace best known for facilitating a $2.9 million NFT sale involving Twitter co-founder Jack Dorsey’s first tweet, has stopped allowing users to buy and sell nearly all NFTs on its platform. Cent’s CEO and co-founder, Cameron Hejazi, said rampant plagiarism and illegal activity in the NFT marketplace led to the decision.

“We would ban offending accounts, but it was like we’re playing a game of whack-a-mole,” Hejazi told Reuters. “Every time we would ban one, another one would come up, or three more would come up.”

I want to believe that OpenSea and its NFT peers can work through these issues, finding some acceptable balance between anarchy and authority. Maybe more than that, I don’t want to feel out-of-touch and old, unable to see the grand vision for our blockchain future.

But, like Warzel, I also see many reasons for concern. We’ve built our society around enforceable rules and regulations for centuries. What makes us think that our proclivity for greed, manifested in these NFT charlatans tormenting OpenSea and Cent, will subside in a blockchain world?

Maybe the blockchain visionaries will be proven right, just like the Internet’s earliest optimists. In the meantime, the lasting message of Warzel’s article rings true: it’s okay to be skeptical.

Want to send thoughts or suggestions for Data Sheet? Drop me a line here.

Jacob Carpenter

NEWSWORTHY

Pedal to the metal. Peloton’s new CEO tamped down speculation that the troubled fitness company would be sold after the dramatic recent decline in its stock price, The Financial Times reported Monday. Barry McCarthy, the longtime tech executive who replaced Peloton chief John Foley last week, said he expects to rebuild the company’s financial standing through a growth strategy, as opposed to facilitating a sale. McCarthy acknowledged that Foley and other Peloton insiders, who combine to hold a majority stake in the company, will dictate whether the company remains independent.

Revenge of the dinobabies. Newly released court documents show IBM executives discussed pushing out older employees and replacing them with younger staffers, bolstering age discrimination claims made by former workers and investigated by federal officials, The New York Times reported Saturday. The documents include several emails that discuss strategies for making the company more youthful, including one exchange in which an unnamed executive speaks about a plan to invite “dinobabies” to leave the company and making them an “extinct species.” IBM, which faces a potential class action lawsuit and underwent an Equal Employment Opportunity Commission inquiry, denied that the company engaged in systemic age discrimination.

Should’ve seen this coming. Cryptocurrency exchange Coinbase experienced brief outages Sunday after its Super Bowl ad flooded the platform with traffic. Coinbase executives said they “had to throttle traffic for a few minutes” following the ad, which featured a QR code bouncing around TV screens. The Coinbase app ranked as the second-most popular free download in Apple’s App Store as of Monday morning.

That’s unsportsmanlike conduct. A ransomware gang known as BlackByte claimed credit for a hacking attack on the National Football League’s San Francisco 49ers, which acknowledged a security breach involving its corporate IT network systems, The Associated Press reported Sunday. The gang posted some team financial documents that it claimed as stolen, though it did not disclose any ransom demands. The disclosure, which came hours before kickoff of the Super Bowl, did not appear to impact the team’s stadium or ticketing systems.

FOOD FOR THOUGHT

Bitter coin. Divorce was already hard enough. Now, crypto is making it even messier. Several lawyers and forensic investigators told The New York Times in a Sunday report that they’re seeing a rise in fights over cryptocurrency during divorce proceedings. Most often, the skirmishes involve one spouse hiding crypto assets from the other, necessitating some blockchain sleuthing. While the extent of the issue isn’t fully known, available court records show how valuable crypto can lead to million-dollar legal battles as couples divide their assets.

From the article:

An ugly divorce tends to generate arguments about virtually everything. But the difficulty of tracking and valuing cryptocurrency, a digital asset traded on a decentralized network, is creating new headaches. In many cases, divorce lawyers said, spouses underreport their holdings, or try to hide funds in online wallets that can be difficult to get into.

“Originally, it was under the mattress, and then it was the bank account in the Caymans,” said Jacqueline Newman, a divorce lawyer in New York who works with high-net-worth clients. “Now it’s crypto.”

IN CASE YOU MISSED IT

A fast-growing crypto community supported by Gwyneth Paltrow and Mila Kunis wants to close the gender gap in Web3, by Emma Hinchliffe and Jessica Mathews

The chips shortage crippled parts of the world economy. A Russian invasion of Ukraine would make it even worse, by Jeremy Kahn

Electric air taxis are coming sooner than you think, says jet engine maker Rolls-Royce, by Anurag Kotoky, Kyunghee Park, and Bloomberg

Utah Jazz owner Ryan Smith built Qualtrics into a $1 billion in revenue business from his basement—by asking customers about their opinions, by Sheryl Estrada

This baseball player turned artist has NFT art sales valued at more than $19 million. Here’s how he did it, by Amiah Taylor

America needs civil justice reform. Unleashing technology is the first step, by Patrick Forrest and Binh Dang

BEFORE YOU GO

Ripped straight from the headlines. Netflix couldn’t even wait for the arraignment? Tech entrepreneurs Ilya “Dutch” Lichtenstein and Heather Morgan have been in federal custody for less than a week, and their life story is already set for a docuseries on the streaming platform, Variety reported Friday. The duo, accused of laundering $4.5 billion worth of Bitcoin stolen in a 2016 hack, has become the subject of intense Internet interest, with online detectives poring through Lichtenstein’s ironic crypto security postings and Morgan’s cringey rap videos. The director of Netflix’s Fyre Fest docuseries is set to helm the project.

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